Analysts suggest that the strong correlation between Bitcoin and technology stocks, particularly the Nasdaq 100, contributed to the slowdown.
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Market sentiment was also influenced by expectations regarding the policies of the US Federal Reserve. Investors predict that the Federal Reserve will keep interest rates higher for an extended period of time, which historically leads to reduced risk appetite in various asset classes, including cryptocurrencies. The significant loss in the cryptocurrency market appears to be due to a combination of increased competition in the technology sector due to new developments in AI and changing expectations regarding US monetary policy.
What you need to know
The coming days are likely to be crucial. The first of eight Federal Open Market Committee (FOMC) meetings this year is approaching, and the cryptocurrency market is watching closely for interest rate hikes, which have a significant impact on speculative assets. If higher rates are implemented, they will generally discourage risk-taking, which could delay the recovery. However, despite the volatility, the cryptocurrency market has shown resilience after past declines. For example, the collapse of Mt. Gox in 2014 caused the price of Bitcoin to drop 36%, and the Earth/Moon collapse in 2022 caused Bitcoin to fall 50%, from $40,000 to $20,000. Furthermore, the bear markets of 2018 and 2022 saw cryptocurrencies eventually recover, albeit at different times. After the 2018 crash, Bitcoin took nearly three years to reach all-time highs. During the market downturn in 2022, Bitcoin recovered in 2023, driven by renewed interest in decentralized finance and institutional adoption. While the short-term recovery may be difficult, the long-term market trajectory could still see growth, driven by innovation, increased adoption, and greater financial integration.
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